NEWS: Fall in Swiss watch exports – whither China?

China’s importance in the global economy is as such that any slowing down of her economy can lead to jitters, even though some have argued that the country’s figures should be approached with somecaution.

The National Bureau of Statistics has just announced that GDP grew 7.4 percent in the third quarter, with China’s economy slowing for a seventh straight quarter during July-September. The revelation that quarterly figures show the expected slowing down of the economy, regardless of how it may still be doing relative to other economies, is likely to still have an impact, especially in light of Europe’s economic crises and a general flatness of many first world economies (side note – the Australian economy has been doing relatively well, internationally speaking).

China’s GDP grew 9.2 percent in 2011 and has averaged an annual rate near 10 percent for three decades, but the government’s forecast is for 7.5 percent for 2012, and it looks as though this will be realised. China is now the largest or second largest trading partner of seventy-eight countries, and her domination in many global commodities markets such as steel or the slowing down of its demand for iron ore or coal (important for Australia) may be widely know, but all of us with even a cursory interest in watches knows how important and influential this market has been in recent times for the watch industry.

So – will this affect watches? The Federation of the Swiss Watch Industry FH has reported that Swiss watch exports fell in September for the first time in almost three years (and 2.7 percent lower than for September 2011) following decreased demand from consumers in Asia.

Total watch exports during September were CHF 1.7 billion, and follows more than thirty months of steady increase, and is in line with expectations. Nonetheless, although China may be slowing, exports of Swiss watches to Germany jumped 31.2 percent, and increased 23.7 percent for Italy and 18 percent for Spain.

The Greater China (and environs) market for luxury watches has been critical for Swiss watch exports, with the Swatch Group, for example, deriving half of its revenue from Asia. At the beginning of September 2012, Richemont reported that Europe was its best performing region for the previous five months, with a revenue increase of 19 percent (compared to 12 percent in Asia-Pacific and 6 percent in the Americas), but that this was primarily due to Chinese tourists attracted by currency advantages buying more watches. The Paris mega store to be opened this year by Richemont with its quite clear focus on the tourist dollar, is recognition of this. In fact, in 2011 Chinese travellers accounted for 62 percent of Europe’s luxury goods sales.

Are the Swiss watch brands worried? Well the Federation of the Swiss Watch Industry says – “This poor showing, while rather sudden, follows more than 30 months of steady increase and is not therefore cause for concern. It confirms the expected slowdown in growth and aligns the industry with its general progression towards the projected annual target, which will remain well above the level attained in 2011.”

China is expected to be the second largest luxury goods market by 2017, but its fellow members of the BRIC cohort, which account for some 11 percent of luxury sales worldwide (up from 4 percent in 2007), are perhaps the interesting markets to watch.